Three Reasons U.S. Housing Market Will Head Lower

Housing-Market / US Housing
Mar 22, 2010 - 01:28 PM

By: Q1_Publishing

It’s one of the most pressing questions facing investors today.

Is the housing market about to recover?

With the housing market at the center of the credit crunch, any recovery in the housing market could quickly turn the Wall Street recovery into a Main Street recovery.

Consumers would start shopping again. Employment would rebound. And stocks would likely make the next move higher.

But we’re coming out of a genuine bubble decades in the making. And decades of overinvestment creating oversupply are rarely worked off in a couple of years.

That’s why the when you look at the true fundamentals of the housing market you can get a much better idea of when the market will recover, where prices are headed, and what it all means for the markets in the short and long term.

Back to Basics

In his annual letter to Berkshire Hathaway (BRK-A/B:NYSE), Warren Buffett said the light at the end of the housing tunnel isn’t far off:

Within a year or so, residential housing problems should largely be behind us. Prices will remain far below 'bubble' levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.

His rationale, in typical Buffett-like fashion, cut through all the weekly noise and focused on what mattered – supply and demand.

The world’s greatest investor noted that during the bubble years there were two million homes being built per year. He added that households were only being created at a rate of 1.2 million per year.

Supply was far outpacing demand and it couldn’t go on forever.

And it didn’t.

Long-time readers would naturally wonder, has Warren Buffett been reading the Prosperity Dispatch?

Five months ago the housing was still just showing its initial signs of recovery. The “temporaryâ€